F.D.I.C. v. Haines, Civ. 3:94CV0473 (AVC).

CourtUnited States District Courts. 2nd Circuit. United States District Court (Connecticut)
Citation3 F.Supp.2d 155
Decision Date09 September 1997
Docket NumberNo. Civ. 3:94CV0473 (AVC).,Civ. 3:94CV0473 (AVC).
PartiesFEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for the Landmark Bank, plaintiff, v. Robert H. HAINES, III and Theodore N. Kaplan, et al, defendants.

Eric Watt Wiechmann, Douglas M. Poulin, Peter W. Hull, Karen L. Wagshul, Cummings & Lockwood, Hartford, CT, Paul E. Knag, Rali P. Esterman, Cummings & Lockwood, Stamford, CT, Steven L. Feldman, Shapiro, Israel & Weiner, Boston, MA, for FDIC.

Jeffrey J. Tinley, William Thomas Blake, Jr., Tinley, Nastri, Renehan & Dost, Waterbury, CT, Karry Marc Wisser, Nathan A. Schatz, Richard P. Weinstein, Weinstein & Wisser, P.C., West Hartford, CT, for Defendants.

RULING ON PARTIAL MOTION FOR SUMMARY JUDGMENT

COVELLO, Chief Judge.

This is an action for damages in which the plaintiff, the Federal Deposit Insurance Corporation ("FDIC"), as the receiver for the Landmark Bank ("Landmark"), alleges that the defendants, Robert Haines, et al, were negligent, grossly negligent, and breached their fiduciary duty with respect to their management and operation of the failed bank. It is brought pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub.L. 101-73, 103 Stat. 183. On March 1, 1997, the FDIC filed the within motion for partial summary judgment. The issues presented are: (1) whether the court may apply a federal common law precept to displace state common law affirmative defenses that challenge the conduct of the FDIC as the receiver of Landmark; (2) whether the discretionary function exception to the Federal Tort Claims Act, 28 U.S.C. § 2680(a), protects the FDIC from claims arising from its conduct as the receiver of Landmark; (3) whether Connecticut law would operate to bar any claims against the FDIC arising from its conduct as the receiver of Landmark; (4) whether 12 U.S.C. § 1821(k), by authorizing claims against officers and directors for "gross negligence" preempts state common law claims for conduct less than grossly negligent; and (5) whether the defendants' remaining defenses would defeat an otherwise legitimate claim for relief and, therefore, constitute valid affirmative defenses within the meaning of Fed.R.Civ.P. 8(c).

For the reasons that follow, the motion for partial summary judgment is granted in part and denied in part. Document number 500.

FACTS

Examination of the complaint, together with the memorandums, affidavits and Local Rule 9 statements submitted in support of the motion for summary judgment, and the response thereto, discloses the following undisputed material facts. On March 28, 1991, the commissioner of the department of banking for the state of Connecticut declared Landmark insolvent and appointed the FDIC as its receiver. On March 25, 1994, the FDIC brought this action alleging that the former officers and directors were negligent, grossly negligent, and breached their fiduciary duties with respect to their management and operation of the failed bank. The defendants thereafter asserted multiple affirmative defenses against the FDIC.1

STANDARD OF REVIEW

Summary judgment is appropriately granted when the evidentiary record shows that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c). In determining whether the record presents genuine issues for trial, the court must view all inferences and ambiguities in a light most favorable to the non-moving party. See Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir.1991), cert. denied, 502 U.S. 849, 112 S.Ct. 152, 116 L.Ed.2d 117 (1991). Rule 56(c) "provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (emphasis in original). "One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims ... [and] it should be interpreted in a way that allows it to accomplish this purpose." Celotex v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

A motion for summary judgment is an appropriate mechanism to challenge an affirmative defense. 10A CHARLES A. WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE & PROCEDURE: CIVIL 2d § 2737 (1983). "Where a plaintiff uses a summary judgment motion ... to challenge the legal sufficiency of an affirmative defense ... a plaintiff may satisfy its Rule 56 burden by showing that there is an absence of evidence to support [an essential element of] the [non-moving party's] case." (citations omitted; internal quotation marks omitted) F.D.I.C. v. Giammettei, 34 F.3d 51, 54 (2d Cir.1994). "[D]isputed legal questions present nothing for trial and [are] appropriately resolved on a motion for summary judgment." (citations omitted; internal quotation marks omitted) Flair Broadcasting Corp. v. Powers, 733 F.Supp. 179, 184 (S.D.N.Y.1990).

DISCUSSION
A. Affirmative Defenses One Through Six.

The plaintiff first argues that, with respect to affirmative defenses numbered one through six, the defenses are insufficient as a matter of law because the discretionary conduct of the FDIC is protected by: (1) the federal common law no duty rule; and (2) the discretionary function exemption to the Federal Tort Claims Act. 28 U.S.C. § 2680(a). The plaintiff further argues that, even if federal law did not operate to bar these affirmative defenses, Connecticut state law would.

I. FEDERAL COMMON LAW

The plaintiff first claims that, with respect to a claim brought pursuant to FIRREA, federal common law displaces state common law and, under federal common law, the FDIC is insulated from any affirmative defenses arising out of its conduct as the receiver. The plaintiff cites two recent decisions within this district to support this argument. See F.D.I.C. v. Raffa, 935 F.Supp. 119 (D.Conn.1995); F.D.I.C. v. Collins, 920 F.Supp. 30 (D.Conn.1996).

The defendants respond that the Supreme Court's recent decision in O'Melveny & Myers v. F.D.I.C., 512 U.S. 79, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994), determined that federal common law can not modify or supplement the comprehensive statutory framework enacted under FIRREA and, under FIRREA, specifically 12 U.S.C. § 1821(k), state common law governs the determination of their affirmative defenses. Title 12, U.S.C. § 1821(k) provides that claims brought by the FDIC against officers and directors of a failed financial institution shall be brought under such terms as "defined and determined under applicable state law." The defendants further argue that under state common law the FDIC is not immune from claims that challenge its conduct as the receiver and, therefore, that these claims constitute valid affirmative defenses within the meaning of FED.R.CIV.P. 8(c).

1. Background.
i. Federal Common Law and the "No Duty Rule."

"There is no federal general common law." Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). There are, however, "cases in which the creation of a special federal [common law] rule would be justified. Such cases are, as we have said in the past, few and restricted, limited to situations where there is a significant conflict between some federal policy or interest and the use of state law." (citations omitted; internal quotation marks omitted) O'Melveny & Myers v. F.D.I.C., 512 U.S. 79, 87, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994).

The `no duty' rule is a federal common law precept which provides that the FDIC's sole purpose is to promote the stability of the banking system,2 protect depositors, the insurance fund and the public,3 and therefore, the FDIC owes no duty to the officers and directors of a failed financial institution.4 This district has consistently applied the `no duty' rule to insulate the FDIC from claims and defenses arising out of its conduct as the regulator and as the receiver of a failed financial institution. See F.D.I.C. v. Raffa, 935 F.Supp. 119, 124 (D.Conn.1995); F.D.I.C. v. Collins, 920 F.Supp. 30, 34 (D.Conn.1996). "In fulfilling its regulatory responsibilities the FDIC's duty runs only to the public and depositors." F.D.I.C. v. Collins, 920 F.Supp. 30, 34 (D.Conn.1996). The courts in this district, in support of this proposition, have relied upon the reasoning articulated by the seventh circuit in F.D.I.C. v. Bierman, 2 F.3d 1424 (7th Cir.1993).

It is the duty of the FDIC to manage [the failed financial institution's] assets in order to replenish the insurance fund that has been used to cover the losses allegedly caused by the directors and officers. When the FDIC undertakes this task, it must act in the public interest. Its task is to replenish the insurance fund to cover the losses of the depositors and to maintain confidence in the soundness of the Nation's banking system. Indeed, Congress has made it clear that the FDIC is to exercise its discretion in choosing a course of action in its efforts to replenish the fund.... Therefore, when the FDIC acts to replenish the insurance fund through the disposition of assets of the failed bank, including the right of action against the officers and directors, it has no duty first to attempt to mitigate the damages attributed to those individuals by seeking other, and perhaps less sure, avenues of relief.

F.D.I.C. v. Bierman, 2 F.3d 1424, 1439 (7th Cir.1993). "[I]f an affirmative defense includes an element of duty owed by the FDIC, it is insufficient as a matter of law. Similarly, if an affirmative defense challenges the discretionary acts of the FDIC, it is insufficient as a matter of law." F.D.I.C. v. Raffa, 935 F.Supp. 119, 124 (D.Conn.1995). "As this court held in Raffa, a defense predicated on the FDIC's breach of duty or failure to act...

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